Five Steps to Building Your Financial Muscle

Ballooning credit card debt? Expensive kids? Large mortgage? Feeling in over your

head? Read below for 5 steps to help you build your financial muscle.

Every day: Record purchases

Keeping track of every dollar spent may seem like a hassle – every pack of gum?

every trip to the gas station? – but with the range of high and low tech options,

there’s no excuse not to do it. Jeffrey Schwartz, the Toronto-based executive

director of Credit Counselling Services of Canada, says the exercise is an important

eye-opener that can help you plan your budget. “You’re going to be able to identify

areas where you can cut back.”

Every pay period: Put 10 per cent of your pay into savings

The key to easy saving is making sure it’s invisible. You’ll be contributing a steady

amount to an account you won’t touch and the money will be taken out before you

even notice it was there in the first place. You can set up a plan with your bank to

siphon off 10 per cent each paycheque – but feel free to start at a mere 5 or 6 per

cent to ease into things.

The best invisible method for a heavy debit-card user: Take advantage of bank

programs that allow you to round up every retail purchase to the next $5 or $10

benchmark. Say you are charged $22 at a grocery store for toothpaste, shampoo

and deodorant. When you go to pay, the total is rounded up to $25 or $30. The

extra money goes straight to a savings account.

Every month: Tackle one major debt

You could spend the rest of your life making the minimum payments on your

outstanding debts – and lose thousands on interest along the way. Instead, pick

one to tackle each month, and put whatever extra you can into paying it down.

Every month: Find a new discretionary expense to cut or scale back

You hear about the “latte factor” – the way that daily specialty coffee can set you

back $1,000 per year – but that’s not the only discretionary expense that’s

draining your bank account.

You might consider your bundled telecom-service package a fixed expense, but

there’s a lot of trimming you can do in that department. For instance, get rid of the

unlimited texting plan if you only send 100 messages each month. Unbundle your

services and shop around to different providers.

Every year: Reassess your credit-card and bank-account choices.

You can cut up your credit cards, freeze them, or hide them under the couch, as

dozens of personal-finance books will advise you – but that’s extreme.

You don’t need to use it often, but a credit card is a near necessity, Murray Morton,

a Toronto financial planner, says. You need it to book a hotel room, rent a car, etc.

Have a credit card for an emergency or to establish credit but pay off your cards

each month and look at the type of cards you have.

Depending on your lifestyle, it’s best to get a credit card with no fee that has an

attainable rewards program. No point in getting a credit card with a hefty annual

fee and a rewards program that is hard for you to obtain.

(Source: Globe & Mail / by Dakshana Bascaramurty)

How to Manage Your Mortgage

What You Should Think About When Financing Your Home

If you’re like most Canadians, your home is probably the most important

investment you’ll ever make. Whether you’re buying a home or refinancing

your existing home, making the right decision now can help save you money

and provide greater financial stability for your family in the future.

To help you make an informed decision, Canada Mortgage and Housing

Corporation (CMHC) offers the following tips on what you should think about

when financing a home:

Calculate in advance how much home you can afford.

Mortgage

Professionals use a few variables to determine the maximum mortgage you

can afford: your household income, your down payment and your debt

payments including your new planned mortgage along with major related

expenses such as property taxes and heating.

Consider getting a smaller mortgage than the maximum amount

you can afford.

Your future financial picture may not be the same as it is

today. By taking on a smaller mortgage than the maximum amount you

can afford, you will gain the flexibility and peace of mind to manage your

other obligations today and deal with any unforeseen events that might

occur in the future.

Evaluate the impact rising interest rates could have on your

monthly payment.

For many homeowners, a rise in interest rates could

have a significant impact on their housing costs. For example, if you are

renewing a mortgage of $250,000, an increase of just 2 percent in the

interest rate could cost you around $300 extra each month. Evaluating the

impact of future interest rate increases today could help you avoid

potential financial difficulties tomorrow.

Become mortgage free faster by reducing your amortization period.

Choosing an accelerated payment option (equivalent to one extra payment

per year), making lump sum payments or increasing your regular payment

amount all contribute to reducing your amortization period. For example,

making one extra payment per year on your 25 year mortgage will make

you mortgage-free 5 years sooner.

(Source: Canada Mortgage Housing Corporation)

Understanding Your Mortgage Options

Congratulations! You’ve decided to begin your search for a new home, or

perhaps you’ve already found the home of your dreams and are ready to

make an offer. It’s now time to consider your mortgage options. But with so

many different choices available, how can you select the right kind of

mortgage for your needs?

To help you make an informed decision, Canada Mortgage and Housing

Corporation (CMHC) offers the following answers to some of the most

common questions Canadians have about choosing a mortgage:

What is the difference between conventional and high-ratio

mortgages?

A conventional mortgage is a loan for up to 80 per cent of the purchase

price (or market value) of a home. With a conventional mortgage, the

buyer supplies a down payment of at least 20 per cent, and mortgage

insurance is usually not required. If your down payment is less than 20

per cent of the purchase price, however, you will typically need a highratio

mortgage. High-ratio mortgages normally have to be insured

against payment default.

What are fixed, variable or adjustable interest rates?

When you choose a mortgage, you have to decide whether you want the

interest rate to be fixed, variable or adjustable. A fixed rate is locked-in

for the entire term of the mortgage. With a variable rate, the payments

remain the same each month, but the interest rate fluctuates in

accordance with the overall market. For adjustable rate mortgages, both

the interest rate and the mortgage payments vary based on market

conditions. Talk to your broker to find out which option is right for you.

Should I choose an open or closed mortgage?

With a closed mortgage, you pay the same amount each month for the

entire term of the mortgage. Closed mortgages can be a good choice if

you want a fixed payment schedule, and you don’t plan on moving or

refinancing before the end of the term. An open mortgage allows you to

pre-pay a lump sum or even the entire loan at any time without a

penalty. An open mortgage can be a good choice if you’re planning to sell

your home in the near future, or if you want the flexibility to make lump

sum payments.

What about the term, amortization and payment schedule?

The term is the length of time (usually from six months to 10 years) that

the interest rate and other conditions of your mortgage will be in effect.

Amortization is the period of time (such as 25, 30 or 35 years) over

which your entire mortgage debt will be repaid. Lastly, the payment

schedule sets out how frequently you will make payments on your

mortgage – usually monthly, biweekly or weekly.